Green Deposits: Existing Framework and the Path Ahead

The use of green deposits in infrastructure banking and finance is a growing challenge, with a lack of awareness among individuals and institutions about its availability and benefits. Additionally, there is a need for more product offerings to be made available to investors and for the Indian government to commit to sustainable development. Green deposits can provide an avenue for investors to invest in these projects and help to promote sustainable development in India.


Infrastructure is the backbone of any economy. In India, the need for infrastructure development is necessary due to the country’s large population and fast-paced urbanization. However, infrastructure development projects require large amounts of capital, which is always challenging. This is where infrastructure banking and finance come into play. Infrastructure banking and finance refer to the financial services provided to fund large infrastructure projects. In this context, green deposits serve a crucial purpose as a new source of capital for sustainable infrastructure projects. 

SEBI Circular

The Business Responsibility and Sustainability Reporting (BRSR) framework released by the Securities Exchange Board of India (SEBI) through a circular dated May 10, 2021, is expected to promote responsible business practices and encourage companies to invest in sustainable initiatives. The framework seeks to boost the demand for green bonds in India, which can provide a new source of capital for infrastructure projects and promote sustainable infrastructure development. However, it only applies to certain companies, such as listed companies and certain unlisted companies that meet specific criteria. The BRSR framework was voluntary in nature, and companies were not required to comply with it till FY 2021-22. However, it is made mandatory from FY 2022-2023 and hence, would have a positive impact on the environment, society, and the economy in the long run. By promoting transparency and accountability, the framework would improve their overall performance.  Financing energy-efficient projects through green deposits under public-private partnerships (PPPs) is an effective way to promote sustainable development and reduce the negative impact of energy consumption on the environment.

Green deposits can be utilized to finance the construction of energy-efficient buildings, including the installation of energy-efficient lighting, heating, and cooling systems, and the use of sustainable building materials thereby contributing to sustainable development as also envisaged by the Indian Government through a few of its projects. For example, the Centre’s Smart Cities Mission aims to develop 100 smart cities across the country, with a focus on sustainable development and the use of green technologies. Under this mission, several cities have launched projects to develop energy-efficient buildings, including green buildings, with support from the government and private sector partners.

The Hyderabad Metro Rail Limited (HMRL) is a classic example where HMRL collaborated with a private sector developer (Larsen & Toubro) to construct energy-efficient buildings at the metro stations in Hyderabad. The project involved the installation of energy-efficient lighting systems, rainwater harvesting systems, and solar panels to generate electricity[1]. Green deposits were utilized to finance the project, with the government providing guarantees and incentives to attract private-sector investment.

RBI’s Framework on Green Deposits

In recent years, the Reserve Bank of India (RBI) has taken several steps to promote sustainable finance and energy. One such initiative is the introduction of the RBI’s framework on green deposits, which was issued in April 2023. This framework provides guidelines for banks to offer green deposits to investors, with the aim of promoting investment in environmentally sustainable projects.

The RBI framework provides a clear definition of what constitutes a green deposit. According to the framework, green deposits must be used to finance projects that positively impact the environment, such as renewable energy projects, energy efficiency projects, and projects related to sustainable water management[2]. This clarity helps investors in making informed decisions and ensures that funds raised through green deposits are used for environmentally sustainable purposes.

Further, it encourages banks to adopt best practices in environmental risk management. This includes conducting environmental due diligence on potential projects, monitoring and reporting on environmental risks associated with green deposits and integrating environmental risk considerations into the bank’s credit risk assessment process.

One of the limitations of the RBI’s framework on green deposits is that it does not provide any incentives for banks to offer green deposits. While the framework encourages banks to offer green deposits, there are no financial or regulatory incentives for doing so.


In order to make green deposits successful, some tax incentives can be offered to encourage individuals and businesses to invest in green deposits. Some examples of tax incentives that can be given for green deposits include tax deductions, tax deferrals, reduced capital gains tax rate and income tax rate, etc.

The RBI’s green deposit framework includes concessional treatment of liquidity coverage ratio (LCR) and priority sector lending (PSL) requirements for banks that mobilize green deposits, which could help reduce interest rates and capital gains. This can encourage investors to hold on to their investments for a longer period, which can be beneficial for green projects.

Carbon credits are a type of tradeable permit that allows the emission of a certain amount of greenhouse gases. They can be given to green deposits to incentivize investments in projects that reduce carbon emissions or sequester carbon from the atmosphere. Once the project has been certified, the credits can be issued based on the amount of carbon emissions sequestered. The investors may be granted a carbon credit per ton reduced if they invest in the project. Such credits could be sold or traded on the carbon market, providing an additional source of revenue to investors.

The National Clean Energy Fund (NCEF) and other schemes of the government could also be financed with the help of green deposits under public-private partnerships (PPP) in several ways, namely: –

  • Equity Investment

Green deposits can be used to provide equity investment in PPPs that are aimed at promoting clean energy and sustainable development. This type of investment can provide long-term financing for PPP projects and can help to attract additional private sector investment.

  • Debt Financing

Debt financing can be extended to PPP projects through green deposits. This can be done through loans or other financial instruments that offer lower interest rates and longer tenors than traditional commercial loans. This type of financing can help to reduce the cost of capital for PPP projects and make them more attractive to private sector investors.

  • Risk Mitigation

Green deposits may be utilised to provide risk mitigation instruments to PPP projects. For example, they can be used to provide guarantees or insurance products that protect investors from potential losses due to project delays, cost overruns, and other risks. These instruments can help to reduce the perceived risk of PPP projects and attract more private sector investment.

  • Green Bonds

Green bonds that are backed by PPP projects can be issued through green deposits, to be marketed to socially responsible investors. Such bonds can act as a long-term source of financing for such projects and the proceeds from these bonds could be used to finance clean energy infrastructure and other sustainable development initiatives.

  • Technical Assistance

Conferring technical assistance to PPP projects is possible with the help of green deposits and this includes support for project development, feasibility studies, and other activities that help to build the capacity of projects and attract private sector investment.

Therefore, these mechanisms can help to accelerate the development of clean energy infrastructure and support the transition towards a low-carbon economy, while also attracting private sector investment to support sustainable development initiatives in turn providing financial support and incentives for renewable energy and sustainable development projects. Companies could also choose to invest in such projects using their CSR funds, potentially indirectly incentivizing green deposits.


The RBI’s framework on green deposits is a positive step towards promoting sustainable finance and encouraging banks to adopt environmentally sustainable practices. The framework provides clear guidelines for banks to offer green deposits and encourages them to adopt best practices in environmental risk management. However, the lack of incentives for banks to offer green deposits may limit the framework’s effectiveness and the RBI may need to consider providing financial and regulatory incentives for the same.


[1] Anil Nair, Green Bonds for Sustainable Urban Transport in India

Available at

[2] Ravi Meena, Green Banking: As Initiative for Sustainable Development

Available at –

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Green deposits can be utilized to finance the construction of energy-efficient buildings, including the installation of energy-efficient lighting, heating, and cooling systems, and the use of sustainable building materials thereby contributing to sustainable development as also envisaged by the Indian Government through a few of its projects. For example, the Centre’s Smart Cities Mission aims to develop 100 smart cities across the country, with a focus on sustainable development and the use of green technologies. Under this mission, several cities have launched projects to develop energy-efficient buildings, including green buildings, with support from the government and private sector partners.


Relaxations to Listed Companies by SEBI in the Times of COVID 19

The Hon’ble Delhi High Court unprecedented situation brought in by the COVID-19 global pandemic has thrown some difficult challenges both in the physiological and economical realm. Ensuring business continuity and sustenance has become a priority for the revival of the backsliding economy. While measures are being taken in individual level, governmental authorities and agencies across the globe are offering relaxations in strict compliance requirements to help organizations make through the current situation seamlessly. The Hon’ble Delhi High Court has suspended the operation of a public notice issued by the Controller General of Patents, Designs and Trademarks (CGPDTM) that had fixed the cut-off date (18.05.2020) for completion of various acts/proceedings, filings, payment of fees and other deadlines that had fallen due during this lockdown. The public notice was found to be contrary to the Supreme Court order which extended the period of limitation applicable to all proceedings before all Courts and Tribunals with effect from 15th March 2020 till further orders.


As expected, the Securities and Exchange Board of India (SEBI) started responding to this complex situation and giving some respite to Listed Companies through its first Circular dated March 19, 2020. Subsequently, several circulars have been issued extending dates for meeting compliance requirements. Relaxations provided by SEBI to Listed Companies are mainly in respect of complying with various obligations under SEBI (Listing Obligations and Disclosure) Regulations, 2015 (SEBI (LODR) Regulations, 2015) and circulars issued thereunder.

Common and Regular Compliance Obligations:

SEBI (LODR) Regulations, 2015 envisages that a Listed Company complies with various requirements such as the appointment of Share Transfer Agent for maintaining share transfer facility or maintaining such functions in-house. Listed Companies are required to send statements giving the number of investor complaints pending at the beginning of a quarter, those received during a quarter, disposed of during a quarter and those remaining unresolved at the end of a quarter to the recognized stock exchange. The compliances of this nature which are common and regular in nature are given more time to comply with. Similarly, compliance requirements regarding certificate for share transfer facility, statements of investor complaints, a certificate from practicing company secretary on the timely issue of share certificate, Corporate Governance Report and Shareholding pattern which were supposed to be submitted by April 2020 are given an extension of time until May 2020. 

SEBI (LODR) Regulations, 2015 also envisages that the Listed Companies are required to submit an annual Secretarial Audit Report along with its Annual Report. The SEBI (LODR) Regulations, 2015 also require submission of financial reports on a quarterly and annual basis to Stock Exchanges where they have listed their equity shares. In respect to the Secretarial Compliance Report and Financial Results, timelines were extended from May 2020 to June 30, 2020.

As we can observe from the above extension as of the date of March 19, 2020, the extensions have given a breathing time of nearly 45 days to Listed Companies.

Board Meetings, Committee Meetings and Annual General Meetings (AGM):

A Listed Company, in addition to regular compliances, is also required to hold four board meetings in a year with a maximum time gap of one hundred and twenty days (120) between two meetings. The condition that there should not be a time gap of 120 days between two Board meetings or Audit Committee meetings was also relaxed to an extent. If a Board meeting is held or proposed to be held between December 1, 2019, and June 30, 2020, then the relaxation from 120 days rule would be available to such listed companies. A similar rule is also made applicable for a Listed Company for holding Audit Committee meetings as they assist the Board to hold the mandated four meetings in a year. If the Audit Committee meeting is held or proposed to be held between December 1, 2019, and June 30, 2020, then 120 days rule would not be applicable between two Audit Committee meetings. But it is important to note that there are no exemptions from holding a minimum number of Board Meetings or Audit Committee meetings, which are four in a year.

In addition to Audit Committee, a listed company has various committees such as the Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee to serve the Board of Listed Company in order to carry on its functions. These Committees are required to hold a meeting at least once in a year. Time for conducting these Committee meetings such as Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee were extended up to June 30, 2020, vide Circular dated March 26, 2020.

Regulation 44 of the SEBI (LODR) Regulations, 2015 has put in place a higher expectation for top 100 Listed Companies by market capitalization in respect to holding of AGM and live one-way webcasting of proceedings of AGM. It requires them to hold AGM within a period of 5 months from the date of closing of the financial year. These top 100 Listed Companies shall be determined based on market capitalization as at the end of the immediate previous financial year. Accordingly, these companies need to hold their AGMs before May 31, 2020, or August 31, 2020, depending on the financial year followed i.e. Financial Year either ending on December 31, 2019, or March 31, 2020. This requirement is relaxed and time is extended up to September 30, 2020 to hold AGM.

Issuance of Debt Securities to Public or Post Disclosures:

A Listed Company intending to issue debt securities to the public is required to comply with SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and Circulars issued thereunder. In this regard one of the requirements is to submit audited financials that are no older than 6 months.  As though in line with the relaxation given for holding Board Meetings, vide Circular dated March 23, 2020, the requirements for Listed Companies intending to issue debt to the public were given exemption from submitting audited financials which are not older than 6 months and allowed them to do a public issue of debt by submitting unaudited financials with a limited review for such period.

Additionally, vide Circular dated March 23, 2020, relaxations were provided to Listed Companies which have already issued debt with respect to disclosures to be made by them. Timelines for making disclosures regarding financial results and disclosures to be made by large corporates were extended up to June 30, 2020.

Relaxations under Takeover Code:

SEBI had also relaxed disclosure to be made under Regulations 30(1), 30(2) and 31(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Regulations 30(1) and 30(2) contemplate disclosures regarding shareholding in a Listed Company on an Annual basis by promoters or shareholders holding 25% or more of the voting rights in the Listed Company. Similarly, under Regulation 31(4), promoters are also required to make a declaration that no encumbrance on shares held by them, other than that already disclosed is made by them. The disclosures which had to be made by March 31, 2020, maybe made before June 30, 2020. SEBI in its Circular dated March 27, 2020, has noted that travel restrictions and various other logistical challenges as reasons for granting such relaxations.

Relaxations Regarding Newspaper Publications:

SEBI has mandated publication of notification of Board Meetings, financial results notice to shareholders etc. in ‘Newspaper’ as per regulation 47 of the SEBI (LODR) Regulations, 2015. These publications seem to be made in order to disseminate information to especially those investors not having access to electronic mode and to enable the investors to make an informed decision on their investments. SEBI seems to have provided relaxation to publish in newspapers for events till May 15, 2020, in order to balance the interest of investors and compliance by Listed Companies. SEBI has also extended similar relaxations to Listed Companies which need to comply with regulation 52(8) of the SEBI(LODR) Regulations, 2015. Regulation 52(8) of SEBI (LODR) Regulations, 2015 requires Listed Companies that have listed NCDs or NCRPS to make similar “Newspaper” publications.

Postponing Implementation of Enforcement Mechanism:

More importantly, as a move to enforce the SEBI(LODR) Regulations, 2015, the penalty mechanism had been rationalized under the Circular dated January 22, 2020. SEBI has now decided to postpone the implementation of the Circular that provided for the imposition of stringent fines with respect to violations of SEBI (LODR) Regulations, 2020 until June 30, 2020. However, the Listed Companies should note that earlier Circular dated May 3, 2018, regarding penal provisions for violation of SEBI(LODR) Regulations, 2015 is still valid.

Miscellaneous Relaxations:


Vide Circular dated April 17, 2020, SEBI has also granted the following exemptions to Listed Companies.

  1. Penalty attracted for delayed reporting of share certificates and the issue of duplicate certificates from March 01, 2020, to May 31, 2020, under Circular dated May 3, 2018, is exempted.
  1. The obligation of prior intimation of Board Meetings required under Regulation 29 (2) to Stock Exchanges is reduced to 2 days from 5 days for meetings considering financial results. This exemption would be available for board meetings held till July 31, 2020, from the date of Circular i.e. March 27, 2020.
  1. Submissions that are allowed to be made to stock exchanges under SEBI (LODR) Regulations, 2020 may be done using digital signature certifications until June 30, 2020.


As is evident from the above discussion, relaxations have been provided to Listed Companies with respect to timelines pertaining to common obligations, debt issues, meetings, disclosures, publication in newspapers, promoting digitalization by allowing Digital Signature Certificates and immunity from penalties arising under SEBI (LODR) Regulations, 2015.

Although these relaxations seem to be a calibrated attempt to help Listed Companies comply in difficult times, it cannot be denied that it would adversely affect investor’s interests. The regulatory body seems to be doing a balancing act between the needs of Listed Companies and the interest of investors.  

However, as uncertainties around the cure of the COVID 19 Pandemic continue, it is not clear if these exemptions would be extended for further time. Nonetheless, it is felt that SEBI should embrace digitalization and extend filings to be made using Digital Signature Certificates beyond June 30, 2020, which is largely the case with other regulatory bodies.



Image Credits:  Alec Favale on Unsplash

while the MCA has undertaken a good effort after prudent thought to provide a one-time relief to defaulting companies while protecting and not affecting existing proceedings under other enactments such as Insolvency & Bankruptcy Code, 2016, RERA Act, 2016 etc. However, it needs to be considered whether the benefits are in its true spirit adequately addressing the woes of India Inc. Especially considering the current situation where every sector is either already in distress or impending peril.


Differential Voting Rights – A Boost to Listed Tech Start-ups

Finding a balance between infusion of capital and retaining control are two sides of a scale that every corporate intending to survive and thrive must strive for. Being cognizant of the stress induced by this balancing act, SEBI, the market regulator, decided to relieve the corporate sector by providing a framework[i] for Issuance of Differential Voting Rights (DVR) shares.


Finding a balance between infusion of capital and retaining control are two sides of a scale that every corporate intending to survive and thrive must strive for. Being cognizant of the stress induced by this balancing act, SEBI, the market regulator, decided to relieve the corporate sector by providing a framework[i] for Issuance of Differential Voting Rights (DVR) shares.

DVR is not a new concept in India. It can be traced back by two decades when the Companies Act, 1956 was amended by Companies (Amendment) Act, 2000 to substitute Section 86, which allowed Indian companies to issue DVR Shares.

Issue of DVR can be in two ways:

  1. a) Issue of shares with superior voting rights to founders and/or
  2. b) Issue of shares with lower or fractional or inferior voting rights to raise funds from private/ public investors.

Interestingly, in the year 2009, with the apprehension of possible misuse of the issue of shares with Superior Voting Rights by listed companies, SEBI disallowed and prohibited issue of such shares for listed companies[ii]. However, it permitted issue of shares with inferior voting rights.

Recently, in an apparent reversal of its policy position, SEBI has allowed the issuance of DVR with superior voting rights by listed companies and disallowed any further issuance of shares with inferior voting rights.

The change seems to be a result of the increasing debate on the need to enable promoters/founders of companies, especially technology-based start-ups, to retain decision-making powers and rights vis-à-vis other shareholders while also raising capital.

The framework along with amendments (dated July 29,2019) to the relevant SEBI Regulations[iii] has been notified after considering the recommendations of the Primary Market Advisory Committee (PMAC) and the public comments on the Consultation Paper.  

In this context, we analyse the key aspects introduced by SEBI on DVR for listed companies.

  1. SR shares for listed start up:

Under the new framework, SEBI permitted issue of Superior Voting Rights (“SR shares”) in the ratio of a minimum of 2:1 up to a maximum of 10:1 compared to ordinary shares to the listed companies. However, the market regulator restricted SR shares only to promoters/founders of tech related listed companies.

SEBI has also made it very clear that a company having superior voting rights shares (SR shares) would be permitted to do an initial public offering (IPO) of only ordinary shares to be listed on the Main Board, subject to fulfilment of eligibility requirements of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the following conditions:

  1. The issuer company should be a technology-based company
  1. The SR shareholder should not be a part of the promoter group whose collective net worth exceed Rs 500 Crores. However, the investment of SR shareholders in the shares of the issuer company shall not be considered in the calculation of the collective net worth.
  1. The issue of these SR shares has been authorized by a special resolution passed at a general meeting with notice of specific matters including the size of issues, the ratio of voting rights, differential dividend, sunset clause, and coat tail provisions. Further, the issuer company should have only one class of SR equity shares.
  1. The SR shares should have the following traits:
  • Have been issued only to the promoters/ founders who hold an executive position in the company.
  • Have been held for a period of at least 6 months prior to the filing of Red Herring Prospectus (RHP)
  • Have voting rights in the ratio of a minimum of 2:1 up to a maximum of 10:1 compared to ordinary shares and such ratio shall be in whole numbers;
  • Have the same face value as ordinary shares
  • Should be equivalent to ordinary equity shares in all respects, except for having superior voting rights.
  1. Enabled Corporate Governance

Since there are increasing debates that introduction of DVRs would result in corporate governance issues such as abuse of minority shareholders, weakening of the checks and balances between shareholders and management, etc, the PMAC has recommended measures to mitigate the corporate governance issues that arise with existence of DVR structure.

As such, in view of disproportionate voting rights conferred to promoters vis-à-vis their economic holding, the new framework adopted following measures to make the companies having SR shareholders subject to enhanced corporate governance:

  1. All companies with SR Shares to have independent directors making up at least half of their total directors and two-thirds of their board committees (other than the audit committee). The audit committee is required to comprise only independent directors.
  2. The framework also provides for additional safeguards for ordinary shareholders by way of ‘Coat-tail provisions. The framework enlists the circumstances where SR shares are considered as ordinary shares. The list covers circumstances like winding up of the company, appointment/ removal of independent, related party transactions etc. In these circumstances, SR shareholders will vote on a ‘one share one vote’ basis.
  3. SR shareholder shall be entitled to SR shares in case of bonus, split or rights issues, however, rights cannot be renounced, and ratio shall remain the same as initially adopted by the company.
  4. The SR equity shares shall be treated at par with the ordinary equity shares in every respect, including dividends, except in the case of voting on resolutions.
  5. The total voting rights of SR shareholders (including ordinary shares) in the issuer upon listing, pursuant to an initial public offer, shall not at any point of time exceed 74%.
  6. The SR share shall be converted into ordinary voting rights after five years of listing or resignation, demise, merger or demerger where the control would be longer with him.





  1. No more inferior voting rights


Prior to the amendment and framework, inferior voting rights were allowed. Now with the new framework disallowing issuance of inferior voting rights, the watchdog has taken away the investors chance to get benefits like bonus, split etc. PMAC committee and SEBI Board is of opinion that such shares should not be encouraged as they attract less investor interest, trade at discount and therefore negatively impact retail shareholders attracted to such shares. Further, lower fractional rights would likely result in existing ordinary shares to trade at premium resulting in lower returns for institutional investors.


Amendment to the Companies Act, 2013

In line with amendments to the SEBI Regulations, the Ministry of Corporate Affairs has amended the Companies (Share Capital & Debentures) Rules, 2014 relating to issue of DVRs vide notification dated August 16, 2019[iv]. Brief changes made are:

  • The requirement of distributable profit for three years as an eligibility to issue shares with DVR has been removed.
  • The existing cap of 26% of the total post issue paid up equity share capital has been revised to a cap of 74% of total voting power in respect of shares with Differential Voting Rights of a company.
  • The time period for issuance of Employee Stock Options (ESOPs) to promoters or Directors holding more than 10% has been enhanced from 5 years to 10 years from the date of their incorporation.

Section 43(a)(ii) of the Companies Act, 2013, provides that a company incorporated under the laws of India and limited by shares is permitted to have equity shares with differential voting rights as part of its share capital. 


DVRs in Other Jurisdictions


Internationally, the listing of shares with differential voting rights, i.e, DVRs is known as Dual Class Shares or DCS which is permitted in many countries. However, in countries like Australia, Spain, Germany and China, they do not permit Issuers with DCS structure for listing.

In US, issuers with pre-existing DCS structures are permitted to list on the NYSE and NASDAQ. Once listed, issuers with one share one vote structure are not permitted to implement a DCS structure that would reduce or restrict the interest of existing shareholders. Founders of companies like Google, Facebook, Alibaba have adopted this DCS structure in one form or another to retain control over their entity.  However, there are investor activists who are widely against such concentrated voting rights with few founders/ managements. Also, there is ongoing debate in the U.S. Securities & Exchange Commission (SEC) about the continuation of DCS.

When we analyse UK, we can see that DCS structures were used in the 1960s to protect corporations from hostile takeovers or for the Queen to have ‘golden share’. However, now with the emergence of institutional investors, who strongly support one share one vote, DCS shares have become unpopular. Supporting the same, the market regulator there has prohibited DCS for companies listing on the UK’s premium Listing.

On the other end of the spectrum, Singapore and Hong Kong have recently permitted DCS structures with the intent to encourage new technology firms. However, considering the cons of such shares, these countries have adopted detailed checks and balances.  




DVR is widely accepted as a defense mechanism for hostile takeover and dilution of interest in a company. Nevertheless, a highly evolving entrepreneurial community in India that is desperately starving for capital will welcome this initiative that could help pitch their companies on a higher scale. Further, it is in consonance with the government’s strategy for ease of doing business and propelling the start-up environment.

However, only time would tell how effective superior DVR shares would be in achieving the desired objective since fractional shares had been brought in place with similar intent but failed to deliver. Moreover, when the voting interest is separated from economic interests, there are always chances of misuse by promoters. It may also lead to other externalities such as misalignment of interests among shareholders, excessive compensation of management, reduced dividend pay-out, management entrenchment, and expropriation. Finally, it remains to be seen whether the checks and balances put in place to curb misuse are effective or need overhauling.



[ii] SEBI circular no. SEBI/CFD/DIL/LA/2/2009/21/7 dated July 21, 2009

[iii] SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, SEBI (Buy-Back of Securities) Regulations, 2018, and SEBI (Delisting of Equity Shares) Regulations, 2009.





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DVR is widely accepted as a defence mechanism for hostile takeover and dilution of interest in a company. Nevertheless, a highly evolving entrepreneurial community in India that is desperately starving for capital will welcome this initiative that could help pitch their companies on a higher scale. Further, it is in consonance with the government’s strategy for ease of doing business and propelling the start-up environment.


SEBI’s Insider Trading Tentacles Reach (Overreach) “fiduciaries”

Recurrent cases of insider trading in eminent corporates has necessitated periodic updation of regulations to meet the needs of the ever-evolving market. The social culture of casually discussing or watsapping Unpublished Price Sensitive Information (UPSI), that is not only difficult to track but also poses evidentiary challenge in the court, needed immediate overhauling. Further, placing all the investors trading in the secondary market on equal footing to ensure symmetrical flow of information among them is exemplar of the non-partisan philosophy that the regulatory authority strives to establish. Towards this objective, the Securities and Exchange Board of India (SEBI), on the recommendations of Shri T. K. Vishwanathan’s Committee on Fair Market Conduct, introduced a myriad of changes through an amendment to the SEBI (Prohibition of Insider Trading) Regulations, 2015 which came into effect in April 2019. Notwithstanding the earnest intention behind the modifications, the amendments are not infallible and could encounter a lot of implementation challenge.  

Major Changes brought about by the amendments to the SEBI Insider Trading Regulations: 


The amendments have brought in various new concepts affecting entities such as law firms, auditors, consultants etc. who, by the very nature of the work carried on for listed company, either get access to UPSI or expressly receive them for specified purposes. UPSI is not generally available to the public and if exposed, would materially affect the price of the securities being traded in the secondary market. Therefore, the role of these entities in stifling leakages was considered crucial and nomenclated as fiduciaries under these amendments through the following concepts: 

Connected Person: 

Individuals associated with the work related to listed company in the last six months, directly or indirectly in any capacity, are considered insiders. The fiduciaries i.e. professional firms such as auditors, accountancy firms, law firms, analysts, insolvency professional entities, consultants, banks etc., assisting or advising listed companies are also covered under the definition of “insider” as connected persons.  

Legitimate purposes: 

Although the regulations allow the use of USPI for legitimate purposes, such as in furtherance of the scope of work assigned by listed company, it cannot be communicated to any other person including other connected persons who are not part of the assignment. The information should be shared only on a need to know basis within the organization.   

Duty to frame code of conduct and recognize Designated Persons: 

The fiduciaries are required to frame code of conduct for regulating, monitoring and reporting trading by Designated Persons (one who is in possession of UPSI or likely to have access to UPSI) and to appoint a compliance officer to implement such code of conduct.  

The amendments also envisage to include immediate relatives of Designated Persons and persons having financial relationship with Designated Persons as insiders requiring compliance with the code of conduct.  Generally, they include partners, retainers at all levels, support staff such as IT Staff and Secretaries and those having access to UPSI.   

Steps envisaged for prevention of insider trading by fiduciaries: 
  • Client information of Listed Companies have to be shared only on a need to know basis within the organization. Adequate and effective system of internal controls must be put in place to ensure compliance with the requirements given under the regulations to prevent insider trading. 
  • A code of conduct has to be framed and a compliance officer has to be appointed who would identify the Designated persons and implement the code of conduct. 
  • Details, including cell numbers of the insiders (Designated person, his relatives and individuals with whom he shares material financial relationship) must be maintained in a database. Further, past employment and educational institutions from where they passed out and their PAN should also be collected. Management must ensure maintenance of structured digital database for the same. 
  • A list of securities as a “restricted list” which shall be used as the basis for approving or rejecting applications for pre-clearance of trades must be maintained confidentially by the compliance officer. 
  • The management, in consultation with compliance officer, is required to determine the threshold value within which Designated persons need not take pre-clearance for executing trades. Any trading over the threshold would require pre-clearance from the compliance officer. 
  • The code of conduct shall stipulate the sanctions and disciplinary actions, including wage freeze, suspension, recovery, clawback etc. that may be imposed for violation of the same. 
  • Violations of insider trading needs to be reported to SEBI. 
  • Individuals must be sensitized regarding the duties and responsibilities attached to the receipt of inside information, and the liability that attaches to misuse or unwarranted use of such information. 
  • On an annual basis, management has to review the implementation of the code of conduct and make changes if necessary.  


Unsettled Issues Post-Amendment to the Insider Trading Regulations:


  1. Collection of details of past employment, educational institutions from where they passed out and PAN Details relating to fiduciaries and their immediate relatives. 


Collection by the compliance officer of a listed company or fiduciary, the details such as phone numbers, past employment, educational institutions from where they passed out and PAN of not only Designated Person but also their immediate relatives is a compromise of the privacy rights of individuals. It is empowering a company official to collect personal details of people who are not even remotely associated or aware of the UPSI or the work carried on by the Designated Persons. Herein “Immediate relative” means a spouse of a person, and includes parent, sibling, and child of such person or of the spouse, any of whom is either dependent financially on such person or consults such person in taking decisions relating to trading in securities. The data that compliance officer is collecting is personal data of many and purpose of such collection will not make much difference in compliance of insider trading law. If a relative denies sharing personal information, what should compliance officer do is also not clear. 

The Listed Companies are expected to sign confidentiality agreement with fiduciary and whereby it can bind fiduciaries with their code of conduct. SEBI also has the power to call for data while investigating a case of insider trading. While all these powers are available additionally empowering compliance officers to collect personal data and private information of relatives, without even having an allegation of commission of an offence is unjustified. Moreover, it seems SEBI has not made any prescriptions to prevent misuse of such personal data at the hands of a listed company.  


2. The regulations allow the compliance officer of a listed company to specify those working in a fiduciary as Designated persons under their code of conduct and make their code of conduct applicable. Thus, there is no requirement of a separate code of conduct, and this amendment is an attempt to overreach its powers on people over whom SEBI has no jurisdiction. 


The amendments impose overlapping obligations on listed companies and fiduciaries to frame and implement a code of conduct. A listed company would be in a better position to analyze and make the code of conduct applicable to partners, employees or persons who are given access to UPSI. It also creates ambiguity especially if the Designated persons, thresholds, pre-clearance requirements as recognized under the listed company’s code of conduct is different from those prescribed by fiduciaries in their code of conduct. 

Therefore, fiduciaries should not be placed at same footing as that of listed company or intermediary who access UPSI. This is the approach taken by the Vishwanathan committee as well.  Fiduciaries are not regulated under the SEBI Act, 1992. They include persons associated with the securities market within the meaning of Section 11B of the SEBI Act, 1992 and such association is only while handling UPSI received from a listed company or while carrying on statutory functions in connection with securities market. Thus, requiring fiduciaries to frame their own code of conduct and making all requirements of code of conduct as in the same manner that applicable to an intermediary seems to be an attempt to overreach by SEBI and indirectly bring all consulting firms (lawyers, accountants, management consultants) under its jurisdiction.   

Thus, it is inappropriate to have a separate code of conduct for regulating trading of Designated persons of fiduciary. Similarly, requiring private information of immediate relatives of fiduciaries to be procured by listed company or fiduciary is in violation of privacy rights of such persons. These are clear case of overreach of powers by SEBI.  



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It is inappropriate to have a separate code of conduct for regulating trading of Designated persons of fiduciary. Similarly, requiring private information of immediate relatives of fiduciaries to be procured by the listed companies or fiduciary is in violation of the privacy rights of such persons.